A D-Wave 2X quantum computer is pictured at the Quantum Artificial Intelligence Laboratory (QuAIL) at NASA Ames Research Center in Mountain View, Calif., in December, 2015.Stephen Lam/Reuters
Stocks in speculative quantum-computer developers have been on a wild ride of late – and both Canadian-founded D-Wave Quantum Inc. and some investors have taken advantage of the frenzy.
D-Wave last week said it had raised US$175-million issuing equity since April, including US$75-million raised on Dec. 9 alone, when investors paid US$4.81 a share on average. That’s five times its stock price less than two months earlier, when it was so low that the New York Stock Exchange threatened to delist D-Wave’s shares. That was the third such warning D-Wave received since it went public by merging with a special purpose acquisition company in 2022.
Now, after capitalizing on its recent stock surge, D-Wave, which had relied on a dilutive equity line of credit from Lincoln Park Capital Fund, LLC and a US$50-million loan from its largest shareholder, Montreal-based Public Sector Pension Investment Board, to fund operations post-IPO, is in its strongest financial position in its 25-year history. This fall, it repaid PSP’s loan and D-Wave expects to end 2024 with US$160-million in cash.
“We believe this funding substantially improves the company’s financial strength” and positions it to execute on product development and commercialization plans, CEO Alan Baratz said in a release last week.
Former D-Wave chairman Paul Lee said in an interview: “D-Wave has always suffered from never having a big cash runway; it’s always had a year of cash or less. This has to be the first time it has ever had more than three years of cash. That will allow it to make long-term investments and really go after the technology.”
At least three investors have taken the opportunity to sell into the stock surge. PSP, which has invested more than US$120-million in D-Wave equity, unloaded 18.37 million of its 59.4 million shares last week for between US$4.21 and US$5.01 a share, for aggregative proceeds of US$78.8-million, according to a securities filing. Kensington Capital sold its position and that of the BC Tech Fund, which it manages – stakes of hundreds of thousands of shares each, for a modest gain, senior managing director Rick Nathan said.
Others haven’t been so lucky. Long-time investor 180 Degree Capital Corp., of Montclair, N.J., sold its last 650,000 shares in the quarter ended Sept 30 for 98 US cents, according to a regulatory filing. It lost nearly US$500,000 on its total investment. If 180 had waited a few months it would have booked a profit. Dave Barr, CEO of Vancouver’s PenderFund Capital Management, said his company sold all holdings it managed for a loss at about US$1 a share in 2023 after a post-IPO lockup lifted.
Just seven weeks ago D-Wave stock was hovering at US$1, one-tenth its value when it went public. The unprofitable company, which recently moved its headquarters to Palo Alto, Calif. from Burnaby, B.C. had missed several financial forecasts since going public and generated US$6.5-million in revenue during the first nine months of 2024 while losing US$57.8-million.
Despite those lowly results, D-Wave is the most commercially advanced developer of an emerging class of machines that draw their computing power by harnessing the strange physical properties of subatomic particles.
Industry proponents believe quantum computers will some day be vastly more powerful and capable than the world’s most powerful supercomputers. But years of development solving difficult technical challenges await startups and tech giants alike, including International Business Machines Corp. IBM-N and Google GOOGL-Q, who are developing the machines.
D-Wave got to market first by developing a limited but practical version of a quantum computer that can perform calculations over the internet to support such tasks as financial modelling, material simulation and work-force scheduling.
Then, in early November, D-Wave and other quantum-computing stocks took off, driven by several factors including technical advances by Google in developing its Willow quantum chip and renewed interest in emerging technologies including cryptocurrencies and artificial intelligence after the U.S. election. Several accounts on X cheered on quantum stocks including IonQ, Inc.
Meanwhile, the U.S. Defence Advanced Research Projects Agency recently launched a program that could award quantum-computer companies up to US$316-million each if they can show their machines will operate at scale by 2033. Canada’s Photonic Inc. and Xanadu Quantum Technologies are among the applicants.
By the end of November, D-Wave stock topped US$3 a share. It has gyrated wildly this week. On Monday, it soared, increasing by nearly 45 per cent. Then on Wednesday, it touched an intra-day high of US$10.50. On Thursday, it slumped by 29 per cent to close at US6.37. That still leaves the stock up 27 per cent on the week and up more than six-fold in the past two months.
Other quantum-computer developers have been on a similar trajectory including Rigetti Computing, Inc., Quantum Computing Inc. and IonQ.
Quantum-computing industry observers largely shrugged off the meteoric stock moves as a premature speculative frenzy. “I’ve talked to a lot of bankers who say it’s not institutional investors pushing this, it’s retail investors,” said Xanadu CEO Christian Weedbrook.
“It reminds me of a quantum version of Gamestop and AMC,” he added, referring to the meme stock rally in 2021. He described it as “just a very small bubble” that he expects to happen periodically as quantum developers continue to make advances.
But while Photonic founder and chief quantum officer Stef Simmons agreed in an interview that “there’s a lot of froth in the market,” she added: “There’s a lot happening under the water causing people to start thinking this is a five-year game now” as opposed to a decades-long wait until quantum computers become a reality.